Speaker 1: Eaving home on the road down before.
Speaker 2: Riding along on the speed jen I've in begging about.
Speaker 2: Flying private was once the province of billionaires, but that's
Speaker 2: no longer true. Sure, the top point one percent can
Speaker 2: drop fifty large buying their own jet, but there are
Speaker 2: many other ways to fly private beyond owning your own
Speaker 2: gulf Stream. There's fractional ownership, hourly charter jet cards, membership,
Speaker 2: and leases. Those are another way to go. Let's explore
Speaker 2: this by speaking with Preston Hollins. He's the founder of
Speaker 2: Prestige Aircraft Finance, hosts a weekly private aviation podcast called
Speaker 2: the vip Set, and he's the author of the newsletter
Speaker 2: Private Jet Insider, providing advice and strategies to help clients
Speaker 2: navigate private aviation. So Preston, let's start with the basics.
Speaker 2: Besides bringing my dogs on the plane, what's the main
Speaker 2: reason people fly private? What are the benefits and drawbacks
Speaker 2: of private aviation?
Speaker 1: Very The one thing that you cannot buy more of
Speaker 1: is time. They say that money can buy anything in
Speaker 1: the world except for more time. I want to challenge
Speaker 1: your audience to say there that is almost true until
Speaker 1: you start talking about private aviation. Private aviation is the
Speaker 1: only way to buy your time back using dollars and
Speaker 1: actually getting time back. Time is the number one differentiator
Speaker 1: when it comes to find private. You go to a
Speaker 1: different part of the airport, you skip security, you drive
Speaker 1: up to the airplane, get on and take off, and
Speaker 1: oftentimes you're even going to an airport it is closer
Speaker 1: to your destination than the commercial airport is. So time
Speaker 1: is the biggest differentiator now. Is it's private, you don't
Speaker 1: have to deal with a lot of other people. There's
Speaker 1: some health benefits that come to it because you're not
Speaker 1: being exposed to so many people. But at the end
Speaker 1: of the day, it is time that you're buying back.
Speaker 1: That is the biggest difference.
Speaker 2: So there are obviously a lot of key differences between
Speaker 2: flying private and commercial. Time saving is one. You're avoiding
Speaker 2: crowds and lines. What are some of the other benefits
Speaker 2: of flying private.
Speaker 1: It's really that the airplane moves on your time. So
Speaker 1: if you think about the last time that you have
Speaker 1: to rush out of a meeting to get to the airport,
Speaker 1: and you need it to because your flight left at
Speaker 1: six h four pm, that plane is leaving whether you
Speaker 1: get there or not. If you've ever had the experience
Speaker 1: of the last minute you're rushing on and you're running
Speaker 1: down the airport. I live close to Atlanta, Georgia, and
Speaker 1: so I have had that experience many times in which
Speaker 1: I'm running through Hartsfield Jackson and trying to get onto
Speaker 1: the plane because i had a meeting that went long
Speaker 1: and I'm trying to get there. Prive deviation is different.
Speaker 1: The plane does not leave without you, and so it
Speaker 1: really creates maximum flexibility. It also increases a lot of
Speaker 1: your ability to de stress. Right, you don't have kind
Speaker 1: of that stressful moment leading up to getting on the airplane.
Speaker 1: Catering you get to pick what type of food is
Speaker 1: on the airplane. You don't have to say, you know,
Speaker 1: cookies or pretzels. You can say I want both, and
Speaker 1: I actually want homemade cookies and I want real pretzels
Speaker 1: and an actual big bag. A lot of people want
Speaker 1: to try and make the justification from a dollar standpoint.
Speaker 1: They say, okay, I value my time at one thousand
Speaker 1: dollars an hour. Let's say I'm an attorney, and you
Speaker 1: can actually put a dollar amount on how many billable
Speaker 1: hours that you have if you and you say Okay,
Speaker 1: my first class ticket's going to be one thousand dollars,
Speaker 1: and so therefore, when can I kind of justify the
Speaker 1: difference between first class and flying private. It's a tough
Speaker 1: comparison when you think about all of the additional fringe
Speaker 1: benefits that come with flying private. If you just try
Speaker 1: and do a cost calculation, you're never going to get there.
Speaker 1: It's never going to make sense to fly private. Probably
Speaker 1: ninety nine percent of the time. There is the one
Speaker 1: percent fringe time where you're going to Nantucket and there's
Speaker 1: six of you and maybe everybody's going to fly first class,
Speaker 1: and maybe you can kind of make it make sense
Speaker 1: on a turboprop, but if you really boil it down,
Speaker 1: it's never going to net out from a cost dollar standpoint.
Speaker 1: But really what it is is it's all those fringe
Speaker 1: benefits that come from flying private that you really can't replace.
Speaker 2: Since you brought up meetings and other related things, I'm
Speaker 2: curious how much of private jet usage is business travel
Speaker 2: and how much of it is recreation vacation fund travel.
Speaker 1: It depends on the demographic that you're looking at. I
Speaker 1: think one big missnomer that is out there is that
Speaker 1: private jets are reserved for Kim kardashing and Justin Bieber.
Speaker 1: You look at how the public perceives private aviation, it's
Speaker 1: celebrities flying to Vegas going on a party. They've got
Speaker 1: all of their friends there. But really the bulk majority
Speaker 1: of private aviation actually looks like main street businesses that
Speaker 1: have multiple locations a lot. In manufacturing, for instance, you
Speaker 1: think about just in time manufacturing, and you think about
Speaker 1: uptime in a manufacturing plant, and if private aviation can
Speaker 1: make sure that your plant is staying online for longer,
Speaker 1: that can be worth millions of dollars an hour to
Speaker 1: a manufacturing plant. So private aviation a lot of times
Speaker 1: looks a lot different than what you think if you
Speaker 1: look at like a per hour basis. As you kind
Speaker 1: of broke it down, the majority is for business. Now,
Speaker 1: if you own an aircraft and you want to take
Speaker 1: depreciation benefits, it needs to be fifty one percent. This
Speaker 1: is not tax advice, but that is all of my
Speaker 1: tax friends say it's got to be fifty one percent.
Speaker 1: Use if you want to get that depreciation. But oftentimes
Speaker 1: it really is used a lot for business. Now you
Speaker 1: can use it for private purposes as well.
Speaker 2: Well.
Speaker 1: You can use it for vacation. It doesn't have to
Speaker 1: only be business. But the vast majority of travel in
Speaker 1: the private jet space is business, which is why the
Speaker 1: use private jet and business aviation are very interchangeable because
Speaker 1: it's oftentimes you know, those two things are often seeing
Speaker 1: hand in hand.
Speaker 2: Huh, really really interesting. Let's talk about the variety of
Speaker 2: options that exist, starting with fractional ownership. What does that mean?
Speaker 1: So there is a couple of different ways to fly private,
Speaker 1: and if it's okay with you, Barry, I'm going to
Speaker 1: take one half step back from there, and I'm going
Speaker 1: to break down the four ways to fly private. I
Speaker 1: actually wrote an article about this. It's at my website
Speaker 1: Pressinhollan dot com. That's a free plug for myself. But
Speaker 1: there are four ways to really fly private, and they
Speaker 1: go from the least committal, the least long term committal,
Speaker 1: to the most committal. So the least committal way to
Speaker 1: fly private is to on demand charter. That means I'm
Speaker 1: going to call up my charter broker and I'm going
Speaker 1: to say I need to go from New York to Miami.
Speaker 1: I need to go tomorrow, and I have four people.
Speaker 1: You're going to make one transaction, you pay it, you
Speaker 1: fly the trip tomorrow, and then you're done. No more commitment.
Speaker 1: You don't ever have to fly private again if you
Speaker 1: don't want to. Ad Hoc charter is kind of the
Speaker 1: colloquial term ad hoc the Latin word for on demand, right,
Speaker 1: So that's ad hoc charter. The second committal would be
Speaker 1: a membership or a jet card, so that is kind
Speaker 1: of the second phase. Those listeners of Bloomberg will be
Speaker 1: familiar with Exojet, they'll be familiar with Vista Jet. If
Speaker 1: you read any of the bond ratings, there's a lot
Speaker 1: of memberships and jet card programs. You are pre paying
Speaker 1: for an hour block. So let's say you put down
Speaker 1: a five hundred thousand dollars deposit and that's going to
Speaker 1: buy you x amount of hours on a certain aircraft type.
Speaker 1: So that is the second, you know, second least committal.
Speaker 1: There are you know, membership fees that are sometimes associated
Speaker 1: with that, but you're not necessarily committing to one aircraft
Speaker 1: type or something like that. The next committal is fractional ownership,
Speaker 1: so you're buying in that was your original question. You're
Speaker 1: buying into a program. This is net jets. This is flexjet,
Speaker 1: this is airshare. There's a few regional providers that do
Speaker 1: fractional program but you're buying a piece of an airplane,
Speaker 1: not too terribly dissimilar to a timeshare, where you're buying
Speaker 1: a portion of the airplane. You may never fly on
Speaker 1: the tail that you own on, but you are committing
Speaker 1: to that membership tier. So maybe you buy one sixteenth
Speaker 1: of an aircraft that allows you fifty hours per year.
Speaker 1: There's a monthly maintenance fee that's associated with it, and
Speaker 1: then you pay per hour. You're committing to a program,
Speaker 1: you're committing to a flute. The most committal way to
Speaker 1: marry an airplane is to buy it, So this is
Speaker 1: I own the airplane. Now you can do that a
Speaker 1: couple different ways. Maybe me and Barry we both live
Speaker 1: in New York and we want to share an airplane,
Speaker 1: so we each go in fifty percent and we buy
Speaker 1: the airplane. But you're only flying on that airplane. So
Speaker 1: it's one tail, number one air after one set of pilots,
Speaker 1: not as much membership. So that's kind of the range
Speaker 1: to set the baseline of the different ways that you
Speaker 1: can fly private.
Speaker 2: So you wrote an interesting post that kind of explains
Speaker 2: the cost differences between all those four things. And what
Speaker 2: struck me is so fascinating was the least amount of
Speaker 2: money you spend annually for something like an on demand
Speaker 2: charter is going to be the most you spend on
Speaker 2: an hourly basis, and vice versa. If you make a
Speaker 2: big commitment annually, your hourly costs are the lowest. When
Speaker 2: people are considering these things, is it simply a function of, Hey,
Speaker 2: how many hours do you think you're flying this year?
Speaker 2: Do you think it's fifty or one hundred hours? Is
Speaker 2: that what informs those choices between jet cards, hourly charter memberships,
Speaker 2: and fractional ownership.
Speaker 1: Generally speaking, yes, when you talk about the first decision
Speaker 1: that you're making, when you're talking about how am I
Speaker 1: going to average my cost on an hourly basis, that
Speaker 1: is generally the right framework to think about. Now, it
Speaker 1: is not the hard and fast rule. I know plenty
Speaker 1: of billionaires who fly flexjet fractional who can totally afford
Speaker 1: their own aircraft, and they probably fly enough hours they
Speaker 1: just don't want to deal with the hassle. Right So,
Speaker 1: but generally speaking, if you're going to say which bucket
Speaker 1: do I fit into private aviation. It's typically when you're
Speaker 1: thinking about how much am I flying per year? If
Speaker 1: you think about it strictly on a per hour that
Speaker 1: I am going to per hour that I'm going to
Speaker 1: actually fly, how much of my paying So let's say
Speaker 1: let's set the benchmark ten thousand dollars per hour that's
Speaker 1: going to be a super mid aircraft that's going to
Speaker 1: be able to take you coast to coast. If you
Speaker 1: were to own in a fractional program and you took
Speaker 1: your purchase cost minus your resale costs, so there's a
Speaker 1: depreciation factor there. You took in all of your monthly
Speaker 1: costs and you average it out from time to time,
Speaker 1: that will actually be lower on a per hour base.
Speaker 1: But if you're only flying ten to fifteen hours per year,
Speaker 1: you're going to have a lot of unused hours. You
Speaker 1: may not actually get the full benefit for it. So
Speaker 1: as you think about it, the typical breakpoint this is
Speaker 1: generally speaking, depending on the aircraft type, and everybody's different,
Speaker 1: but generally speaking, anything below one hundred hours you are
Speaker 1: typically going to win in a on demand or a
Speaker 1: charter program. Anything above one hundred hours you should start
Speaker 1: considering fractional and then somewhere between one hundred and fifty
Speaker 1: and two hundred hours per year personal flying, you should
Speaker 1: consider whole aircraft ownership.
Speaker 2: So I know, after we broadcast this, I'm going to
Speaker 2: get some calls from some clients and some colleagues who
Speaker 2: are going to ask, hey, I've put some couple of
Speaker 2: million dollars away and make a couple of million dollars
Speaker 2: a year. I'm tired of getting to the airport two
Speaker 2: hours early and fighting through TSA. At least I don't
Speaker 2: have to take my shoes off anymore. And they're going
Speaker 2: to say, what's the best program for me? They do
Speaker 2: some business flying, They do a bunch of a few
Speaker 2: vacations a year every now and then they'll fly out.
Speaker 2: Oh my kids in Purdue, let me go out to
Speaker 2: the Midwest for someone like that? What sort of program
Speaker 2: would you recommend? And I know I'm giving you broad
Speaker 2: parameters and not anything very specific.
Speaker 1: So I always suggest, if you are just getting into it,
Speaker 1: an on demand charter program is going to be what
Speaker 1: you want to do first, because you don't know what
Speaker 1: your personal preferences are. You don't know if you like
Speaker 1: flying on light jets or if you don't like flying
Speaker 1: on light jets. You don't know if you want the
Speaker 1: extra room, be able to stand up flat floor. There's
Speaker 1: a lot of variables that go into that. So I
Speaker 1: would say find a really good broker that has education forward.
Speaker 1: Jets are moving from one place to another and not
Speaker 1: necessarily between. It's not like a hub and smoke model
Speaker 1: like the airlines, and so get a really good broker
Speaker 1: that can help educate you on what it is you
Speaker 1: might like and what it is you might not like.
Speaker 1: Try a bunch of different flavors of aircraft before you
Speaker 1: start committing to anything long term, because you just don't
Speaker 1: know what you don't know.
Speaker 2: So, since you mentioned different flavors of aircraft, let's talk
Speaker 2: about a few. There's a Dessalt and Bombadare and Embryer
Speaker 2: and Honda jets came out a couple of years ago.
Speaker 2: They kind of surprised everybody. How broad is the range
Speaker 2: of jets that are available either for charter or least
Speaker 2: or membership.
Speaker 1: Yeah. So when you're talking about flying in the backseat, right,
Speaker 1: so we're going to leave the people who fly in
Speaker 1: the front seat, which is another type of person. When
Speaker 1: we look in the backseat It ranges from turboprops, which
Speaker 1: is jet fuel that powers a propeller, so that's your
Speaker 1: King Airs, your Pilatus PC twelves. So that is kind
Speaker 1: of the call it the bottom end of the market.
Speaker 1: You're gonna have the least amount of range, the least
Speaker 1: amount of speed, but it's also going to be the
Speaker 1: most cost of wheels up. If you ever watch college
Speaker 1: game day and you remember seeing, oh, the one that
Speaker 1: has the two propellers on the side, that's a king
Speaker 1: Air three fifty for instance. So that is kind of
Speaker 1: the bottom end of the range. You then have very
Speaker 1: light jets, which is going to take two to three passengers.
Speaker 1: That's very light jet, qualifies as the Honda Jet the
Speaker 1: citation M two. Even the Suius Vision Jet, which is
Speaker 1: kind of in a league of its own as a
Speaker 1: single engine jet, is in the very light jet category.
Speaker 1: You then have light jets, which is going to be
Speaker 1: Emperor Phenom three hundred, the citation CJ three and CJ four.
Speaker 1: Light jets are really great for regional travel, not as
Speaker 1: great for coast to coast You're going to have to
Speaker 1: stop at some point. Then you have so mid size
Speaker 1: the citation XLS that's going to be you know, again
Speaker 1: regional travel. You're not quite going to get New York
Speaker 1: to San Francisco, but you're going to get pretty close.
Speaker 1: Then you have the super mid sized jet, which is
Speaker 1: kind of like, you know, the differ between large and
Speaker 1: extra large shirts. It's like, oh, that was lazy. Super
Speaker 1: mid jets is a great example super mid jets. The
Speaker 1: Challenger three one hundred, three fifty thirty five hundred is
Speaker 1: going to qualify in that the citation latitude, the citation longitude.
Speaker 1: The latitude cannot get coast to coast, but the citation
Speaker 1: longitude can. That's going to be your super mid size.
Speaker 1: Those are typically going to have a flat floor. They'll
Speaker 1: see around eight people at max capacity, and that's going
Speaker 1: to be the super mid sized jet. Is the first
Speaker 1: time we're going to unlock that New York to San Francisco,
Speaker 1: New York to LA trip. Then you start getting into
Speaker 1: the large cabin. So when you get into large cabin,
Speaker 1: you have the Challenger six o four six fifty uh
Speaker 1: six five six fifty. You have the Falcon two thousand,
Speaker 1: which kind of feeds on that super mid size to
Speaker 1: large cabin.
Speaker 2: Can you take those New York to London, New York
Speaker 2: to Paris.
Speaker 1: You can get New York to London depending on which
Speaker 1: way the wind is blowing and how new it is.
Speaker 2: Well, that's a little tight. And my assumption is as
Speaker 2: you go from small light to mid to super mid
Speaker 2: to large, everything not just the cost of the jet,
Speaker 2: but the insurance, the main and it's the hangar, the pilots.
Speaker 2: All of this scales up dramatically as you go from
Speaker 2: flying New York to DC versus San Francisco to Hong Kong.
Speaker 1: Yeah, it scales up proportionately. As you get larger in
Speaker 1: the aircraft. You start having higher pilot cost you start
Speaker 1: having higher insurance costs, you have higher fuel burn on
Speaker 1: a per hour basis. So it does exponentially get larger.
Speaker 1: That's not to say, though, that people automatically enter the
Speaker 1: light jet category the turboprop first. There is a vanity
Speaker 1: piece to private aviation. They always say that the most
Speaker 1: expensive part of the plane is the window. And that's
Speaker 1: because when the shade is up and you land at
Speaker 1: the FBO, you look out and you say, ooh, I
Speaker 1: like that one, and so you're tempted to kind of
Speaker 1: step up.
Speaker 2: Really interesting. My last question how has the technology changed
Speaker 2: private aviation in recent years.
Speaker 1: Yeah, so there's been a lot of software that's come
Speaker 1: to market over the last call it ten to fifteen
Speaker 1: years that have really impacted the way in which private
Speaker 1: flyers are interfacing with kind of the administrative layer of
Speaker 1: private aviation because it is such a tax complicated factor.
Speaker 1: There is tracking tools out there, there is services that
Speaker 1: will actually help you make sure. There's maintenance tracking softwarees.
Speaker 1: There's predictive maintenance tracking softwares. There's logbooks scanning aviation in general.
Speaker 1: I know this is shocking, but aviation in general lags
Speaker 1: from a technological standpoint because of how conservative it is.
Speaker 1: So paper logbooks are still a thing. There are still
Speaker 1: maintenance records that are held in paper in a fireproof
Speaker 1: safe at the FBO. That's like still a very common thing.
Speaker 1: There has been a shift towards technology and aviation when
Speaker 1: you look at private aviation, though. The challenge for software entrepreneurs.
Speaker 1: I get dms all the time on x to say, hey,
Speaker 1: I want to build XYZ software and revolutionize the market.
Speaker 1: The problem is in the grand scheme of things, it's
Speaker 1: not that big.
Speaker 2: So people listening to this conversation are thinking themselves, Hey
Speaker 2: I'd like to fly private ballpark figures. How much money
Speaker 2: you need to have to make this really a worthwhile experience?
Speaker 1: So generally speaking, it's two million dollars in net income, right,
Speaker 1: so that's kind of cash flow to you, and twenty
Speaker 1: million dollar net worth before you start chartering on a
Speaker 1: regular basis. So that's you know, probably vacations, that's probably
Speaker 1: some business trips. That's not you know, you're not pedal
Speaker 1: to the metal. Never have seen the inside of a
Speaker 1: commercial airport again, but you're seeing it less and less.
Speaker 1: At two million dollars of income and twenty million dollars
Speaker 1: in net worth before you start thinking about buying a
Speaker 1: mid sized jet where you sit in the back and
Speaker 1: you have pilots and all of that. The number was
Speaker 1: between ten and twenty million of net income and around
Speaker 1: one hundred to two hundred million dollars of net worth.
Speaker 1: Now that includes privately held companies, that includes my operating
Speaker 1: company has been marked to market at two hundred million dollars,
Speaker 1: and then I'm starting to think about an aircraft. But
Speaker 1: that is generally speaking, now, that is not the rule.
Speaker 1: In my day job, I look at people's financials and
Speaker 1: help them place debt for aircraft purchases. I will tell
Speaker 1: you that that number is not a hard and fast rule.
Speaker 1: It is a good rule of thumb. But for everybody
Speaker 1: it's different, right. It may be a higher net worth
Speaker 1: and maybe you're a lower cash flow. Maybe you're a
Speaker 1: really cash flow person and this is really what you
Speaker 1: want to do. But those that's kind of a good general,
Speaker 1: you know, general term to start looking at kind of
Speaker 1: midsize jets and then as you kind of scale up,
Speaker 1: you're really not buying a brand new G seven hundred
Speaker 1: until you're knocking on the billion dollar market.
Speaker 2: So to wrap up, if you're doing pretty well income
Speaker 2: wise and have a couple of shekels put away, you
Speaker 2: don't have to go out and drop tens of millions
Speaker 2: of dollars buying your own jet. You could do hourly charter,
Speaker 2: you could do fractional ownership, or you could do one
Speaker 2: of the jet memor membership cards that allow you to
Speaker 2: spend less time in commercial airports and more time getting
Speaker 2: to where you go quicker, faster, and more comfortably. I'm
Speaker 2: Barry rid Helts. You're listening to Bloomberg's at the Money